MORGAN STANLEY: Here's What The World's Most Important Gold Consumers Just Told Us

India is the world's largest gold consumer and accounts for 25
percent of global gold demand.

Naturally, investors closely watch changes in Indian gold demand
for their impact on gold prices.

In a new report, Morgan Stanley analysts Sheela Rathi and Ridham
Desai say that with the government's attempts to curb gold
demand (because gold already represents 72 percent of India's
current account deficit), and
weakness in the Indian rupee, India's gold demand
could fall 4 percent in volume in 2012, but rise 4
percent in price.

Morgan Stanley conducted a survey across 16 cities for urban
consumers and eight states for rural consumers. Here are the key
findings:

Gold demand will be split equally among investment. life
events (marriage etc) and discretionary consumption. Though life
events are more important for rural consumers and urban consumers
strike a balance between investments and life events.

Households are increasing their demand for gold bars and
coins. Rising income is behind the growing share of gold bar
holdings.

Gold accounted for a third of household portfolio's surveyed
but this is expected to decrease marginally in 2012 in favor of
fixed deposits. Safety and better returns were they main reasons
they invested in gold.

Consumers expect gold prices to rise by 8 percent in 2012.
"Our analysis suggests that if prices rise 10% above
expectations, demand is likely to fall 10% instead of declining
by 5%. On value basis, the impact is likely to be less than 1ppt.
This indicates that households adjust the volumes and not value
in the event of sharp moves."

13 percent of households have taken loans against gold in the
last year.